A06-1399

In re the Marriage of:

Gregory Dean Naughton, petitioner,

Appellant,

vs.

Pamela Joanne Naughton,

Respondent.

Filed May 29, 2007

Remanded

Worke, Judge

Beltrami County District Court

File No. F6-05-0864

George L. Duranske III, Duranske Law Firm, 1435 Anne Street N.W., P. O. Box 1383, Bemidji, MN 56619 (for appellant)

Thomas L. D’Albani, 205 Seventh Street N.W., Bemidji, MN 56601 (for respondent)

Considered and decided by Stoneburner, Presiding Judge; Dietzen, Judge; and Worke, Judge.

U N P U B L I S H E D O P I N I O N

WORKE, Judge

On appeal in this dissolution matter, appellant argues that the district court erroneously categorized the increase in the value of certain nonmarital real property as marital property and, therefore, the division of that increased value was improper. We remand for findings in support of undue hardship.

D E C I S I O N

Appellant Gregory Dean Naughton argues that the district court erred in giving respondent Pamela Joanne Naughton a marital interest in the parties’ homestead because Minnesota law does not permit the division of real property when there has been no financial contribution or improvements to the property during the marriage. “Determining whether property is marital or nonmarital . . . is an issue over which we exercise independent review, though deference is given to the district court’s findings of fact.” Gottsacker v. Gottsacker, 664 N.W.2d 848, 852 (Minn. 2003).

In 2002, appellant received five acres from his parents and began building a house on the property. Prior to receiving the property, appellant began dating respondent. The parties were married in July 2004. The main issue at trial was the extent of respondent’s interest in appellant’s home. It is undisputed that respondent did not make any financial contributions to the home; however, the parties did dispute the extent of respondent’s labor contributions during the building of the home. It is also undisputed that very little, if any, improvements were made to the home following the marriage. Appellant argues that there is no marital interest in the home because respondent made no financial contributions either before or after the parties’ marriage, and no improvements were made to the home after the marriage.

Nonmarital property includes property acquired before the marriage, acquired in exchange for property acquired before the marriage, and the increase in value of property acquired before the marriage. Minn. Stat. § 518.003, subd. 3(b) (2006). Although the statutory definition states that the increase in value of nonmarital property is also nonmarital, this includes passive appreciation only. Swick v. Swick, 467 N.W.2d 328, 331 (Minn. App. 1991), review denied (Minn. May 16, 1991). Active appreciation is generally considered marital in nature and occurs as a result of an investment of time, effort, or money or the active maintenance, management, or improvement of the nonmarital assets during the marriage. Id. The Minnesota Supreme Court has held:

[T]he increase in the value of nonmarital property attributable to the efforts of one or both spouses during their marriage, like the increase resulting from the application of marital funds, is marital property. Conversely, an increase in the value of nonmarital property attributable to inflation or to market forces or conditions, retains its nonmarital character.

Nardini v. Nardini, 414 N.W.2d 184, 192 (Minn. 1987) (emphasis added). It is undisputed that appellant received five acres from his parents before the parties’ marriage. It is also undisputed that no further improvements were made to the property and no financial contributions were made during the marriage. Therefore, any increase in the value of the property up to the date of the parties’ marriage is nonmarital. Any increase in value after that date, as a result of active appreciation, would be considered marital. Because no further improvements were made following the marriage, and there is insufficient evidence in the record indicating what, if any, increase in the value of the property occurred during the parties’ short-term marriage.

Under Minnesota law, however, a district court is allowed to grant a party up to 50% of the value of the other party’s nonmarital assets if one party’s resources or property, “including the spouse’s portion of the marital property[,] . . . are so inadequate as to work an unfair hardship, considering all relevant circumstances.” Minn. Stat. § 518.58, subd. 2 (2006). Relevant circumstances include “the length of the marriage, any prior marriage of a party, the age, health, station, occupation, amount and sources of income, vocational skills, employability, estate, liabilities, needs, and opportunity for future acquisition of capital assets and income of each party.” Id. “Awards of nonmarital property are left to the discretion of the [district] court.” Wiegers v. Wiegers, 467 N.W.2d 342, 345 (Minn. App. 1991).

Here, the district court found that both parties contributed equally to the labor improvements to the property beginning as early as 2002 in anticipation of marriage. Further, respondent “would not have put the efforts into improving this homestead had there not been the anticipation of marriage, and any award by this court that does not provide her a fair and equitable share of the increase in equity of this property would create an undue hardship on the respondent.” Based on these findings, the district court awarded appellant a nonmarital credit of $20,000 for the land and $20,000 for the financial contributions he could prove that he made to the property. The remaining value of the property was treated as marital and divided equally between the parties. The district court’s conclusion is not supported by Minnesota law. The value of the property on the date of the parties’ marriage is the value of appellant’s nonmarital interest. Any increase in value after that date is marital and should be divided equally between the parties. In order to invade appellant’s nonmarital interest, the district court must find that an undue hardship exists. The district court made the determination that an unfair hardship exists, but the determination is not supported by sufficient findings. The district court did not discuss any of the statutorily-prescribed factors as the basis for its finding. See Minn. Stat. § 518.58, subd. 2. Minnesota law requires more than a conclusory finding of unfair hardship. Therefore, the matter is remanded for the district court to readdress the existence of an undue hardship and, if it finds an undue hardship exists, to make adequate supporting findings of fact and the alteration of the property division, if any, made necessary by its ruling on remand. On remand, the district court shall have discretion regarding whether to reopen the record.

Remanded.